Monday, February 01, 2010

Health Care Revisited Part 2

In my previous post, I listed three types of health care:
  1. Primary Care - normal doctor stuff.
  2. Catastrophic care - ER Stuff, Major Illness, accidents, etc.
  3. Chronic Care - long term illnesses such as asthma, diabetes, and some mental illnesses.

There are several problems with how health care is delivered in America today. I would like to address what I think are the two biggest.

  1. Using insurance the wrong way - we have divorced the reception of services from the payment for services. There is little incentive for the patient to be fiscally involved in his or her health care
  2. Overuse of some types of health care. This is primarily "defensive medicine" where a doctor orders test as a precaution, not against the adverse health, but against a malpractice lawsuit. This also comes when a doctor orders a battery of lab results from a lab in which the doctor is a partner or orders rehab in a clinic where the doctor is a partner. There is a tendency to over-order in such cases.

First, let's talk "insurance." The purpose of insurance is to provide relief in the event of an unforseen and catastrophic loss. We have home owner's insurance to cover costs associated with major and unpredictable damage such as fire, flood (a separate policy), lightening, major theft, or other damage. We don't ask home owner's insurance to cover light bulbs going out or the replacement of air filters or routine maintenance on the grounds. Most financial analysts will tell you to take as high a deductible as you can reasonably afford because it will save you in the long run.

But, when it comes to health insurance, we ask that it cover every single visit to the doctor. At the beginning of the year, I had a visit with my doctor to get blood work on my diabetes. (The blood work came back good with a glucose level of 100 and an A1C of 6.2.) I suggested that I pay the doctor for the visit right then because I had started a new deductible year. However, the office couldn't do that. They had to file the insurance, wait for it to deny, then bill me and wait for me to pay. All the filing and tracking requires a person to handle. So, the costs of delivering routine medical care have gone up because of the friction involved due to the instrusion of health insurance into a type of care that is not a good candidate for insurance - routine, primary care. To reduce the cost of insurance (and the cost of delivering health care), we should return to a high deductible plan that covers only chronic or catastrophic care. Currently, most employees are allowed to have a set amount taken from their paycheck, pre-tax, to cover health care costs. But, the amounts are lost if they are not used. So, may people either have too little take out or they spend wildly at the end of the year so as not to lose the money they've already spent.

We should change this to a health care savings account that can be carried over year to year and will grow tax free. The money in this account can be used for later costs such as rehab or even long term care. If a person dies with money in this account, the money should be taxed at capital gains rates before it becomes part of the person's estate. This would return primary care back to a transaction between the patient and the doctor and it could reduce the cost of delivering care because it reduces the friction of paying for the service.

My next post on health care will dicuss "defensive and offensive medicine."


Phil Snyder

1 comment:

Charlie Sutton said...

I have heard of some doctors refusing any kind of insurance, and being able to reduce their overhead greatly, even as much as 50%. There are also doctors who take only patients who pay a yearly fee and can come in as often as they need to. These doctors cap their patient load at 600 or so and are able to take good time with their patients. I do not know, however, how referrals are paid for.

An insurance company might want to pay for an annual physical and a few screening tests (pap smear, colonoscopy, mammogram, etc) in order to catch some things before they become really serious. But I agree that, on the whole, we would be better of with insurance covering only really serious things.